Understanding Earnest Money and Closing Costs: A Guide for Buyers

Buying a home is an exciting milestone, but the financial aspects can be a bit overwhelming—especially when it comes to earnest money and closing costs. Here’s a simple breakdown to help you feel confident and prepared as you navigate the process. 

What is Earnest Money?

Earnest money is a good faith deposit you make when you submit an offer on a home. It shows the seller that you're serious about purchasing the property. Think of it as a handshake with dollars.

How Much is It? The amount varies, but it’s typically 1-3% of the purchase price. For example, on a $500,000 home, earnest money might be $5,000 to $15,000.

Where Does It Go? Once your offer is accepted, the earnest money is usually held in an escrow account. At closing, it gets applied toward your down payment or closing costs.

Can I Lose It? Possibly—but only under certain conditions. If you back out of the deal for a reason not covered in the contract (like changing your mind after all contingencies have been waived), the seller may be entitled to keep it. But if you cancel for a valid reason, such as a failed inspection or financing contingency, you typically get it back.

What Are Closing Costs?

Closing costs are the fees and expenses you pay when finalizing the purchase of your home. They cover a range of services and can add up to about 2-5% of the purchase price.

Common Closing Costs Include:

• Loan origination fees

• Appraisal and inspection fees

• Title insurance

• Escrow fees

• Homeowners insurance

• Property taxes (prorated)

• Recording fees

Can I Negotiate Closing Costs? Yes! Sometimes you can negotiate with the seller to cover a portion of the costs, or your lender might offer credits. As your real estate agent I can help guide you through these options.

The Bottom Line Understanding earnest money and closing costs is key to avoiding surprises during your home purchase. The Carly McGraw Team is here to make sure you're educated and supported every step of the way. If you have questions, we’re just a call or text away!

Let’s get you a home!